Central Pacific Financial Corp. Reports $137.3 Million First Quarter Earnings Includes Non-Cash Income Tax Benefit of $119.8 Million

April 26, 2013

HONOLULU, HI, April 26, 2013 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the “Bank”), today reported net income for the first quarter of 2013 of $137.3 million, or $3.25 per diluted share, compared to net income in the first quarter of 2012 of $13.5 million, or $0.32 per diluted share, and net income in the fourth quarter of 2012 of $12.4 million, or $0.29 per diluted share. Net income in the first quarter of 2013 included a non-cash income tax benefit of $119.8 million related to the reversal of a significant portion of a valuation allowance that was established against the Company’s net deferred tax assets during the third quarter of 2009. Excluding this income tax benefit, net income for the quarter was $17.5 million, or $0.41 per diluted share.

“The positive momentum from 2012 continued into 2013 with another quarter of strong profitability and further improvement in our asset quality,” said John C. Dean, President and Chief Executive Officer. “In addition to strengthening our capital position, the reversal of the valuation allowance established against our net deferred tax assets reflects the likelihood that we will be able to generate sufficient earnings going forward to utilize these assets."

Significant Highlights and First Quarter Results

Reported ninth consecutive profitable quarter since the Company’s recapitalization with net income of $137.3 million, compared to net income of $12.4 million in the fourth quarter of 2012.

Recorded an income tax benefit of $119.8 million resulting from the reversal of a significant portion of a valuation allowance established against the Company’s net deferred tax assets in the third quarter of 2009.

For the eighth consecutive quarter, the Company did not incur credit costs as it reduced its allowance for loan and lease losses (ALLL) by an amount greater than net foreclosed asset expense, write-downs of loans held for sale and changes to the reserve for unfunded commitments. The reduction in the ALLL resulted in a credit to the provision for loan and lease losses of $6.6 million, compared to a credit of $2.3 million for the fourth quarter of 2012.

Reduced nonperforming assets by $14.7 million to $75.3 million at March 31, 2013 from $90.0 million at December 31, 2012.

The ALLL, as a percentage of total loans and leases, decreased to 3.82% at March 31, 2013, compared to 4.37% at December 31, 2012. In addition, the Company’s ALLL, as a percentage of nonperforming assets, increased to 115.27% at March 31, 2013 from 107.10% at December 31, 2012 and the Company’s ALLL, as a percentage of nonaccrual loans, increased to 133.06% at March 31, 2013 from 121.53% at December 31, 2012.

Increased the loans and leases portfolio by $70.7 million to $2.27 billion at March 31, 2013, compared to $2.20 billion at December 31, 2012.

Increased total deposits by $83.9 million to $3.76 billion at March 31, 2013, compared to $3.68 billion at December 31, 2012.

Maintained a strong capital position with Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios of 22.85%, 24.12%, and 14.86%, respectively, as of March 31, 2013, compared to 22.54%, 23.83%, and 14.32%, respectively, as of December 31, 2012. The Company’s capital ratios continue to be well in excess of the minimum levels required for a “well-capitalized” regulatory designation.

Earnings Highlights

Net interest income for the first quarter of 2013 was $30.7 million, compared to $30.5 million in the year-ago quarter and $29.4 million in the fourth quarter of 2012. Net interest margin was 3.06%, compared to 3.23% in the year-ago quarter and 3.00% in the fourth quarter of 2012. The sequential quarter increase in net interest income and the net interest margin was primarily due to an overall increase in the Company’s interest earning assets, including a $70.7 million increase in its loan and lease portfolio.

The provision for loan and lease losses for the first quarter of 2013 was a credit of $6.6 million, compared to a credit of $5.0 million in the year-ago quarter and a credit of $2.3 million in the fourth quarter of 2012. The credit to the provision for loan and lease losses was the result of continued improvement in the Company’s credit risk profile, as evidenced by the previously mentioned decrease in nonperforming assets and further reductions in the historical quarterly charge-off data used to calculate the ALLL.

Other operating income for the first quarter of 2013 totaled $12.5 million, compared to $13.2 million in the year-ago quarter and $13.0 million in the fourth quarter of 2012. The decrease from the year-ago quarter was primarily due to lower rental income from foreclosed properties of $1.3 million and lower service charges on deposit accounts of $0.7 million, partially offset by higher gains on sales of residential mortgage loans of $1.2 million. The sequential quarter decrease was primarily due to lower gains on sales of residential mortgage loans of $1.9 million and lower rental income from foreclosed properties of $0.4 million, partially offset by higher unrealized gains on interest rate locks of $1.9 million.

Other operating expense for the first quarter of 2013 totaled $32.2 million, compared to $35.2 million in the year-ago quarter and $32.2 million in the fourth quarter of 2012. The decrease from the year-ago quarter was primarily due to lower net credit-related charges (which includes changes in the reserve for unfunded commitments, write-downs of loans held for sale and foreclosed asset expense) of $2.1 million, lower legal and professional services of $1.7 million, a lower provision for repurchased residential mortgage loans of $1.3 million and lower FDIC insurance expense of $0.5 million, partially offset by higher salaries and employee benefits of $1.9 million and higher amortization of other intangible assets of $0.5 million. The sequential quarter decrease was primarily attributable to lower legal and professional services of $0.9 million, lower net occupancy expense of $0.5 million, lower amortization of other intangible assets of $0.4 million, lower charitable contributions of $0.4 million, lower computer software expense of $0.2 million and lower FDIC insurance expense of $0.2 million, partially offset by a higher net credit-related charges of $1.9 million and higher salaries and employee benefits of $0.7 million.

The efficiency ratio for the first quarter of 2013 was 72.74% (excluding foreclosed asset income of $0.3 million and amortization expense related to certain intangible assets totaling $0.7 million), compared to 74.99% in the year-ago quarter (excluding foreclosed asset income of $0.1 million, write-downs of loans held for sale of $1.8 million and amortization expense related to certain intangible assets totaling $0.7 million) and 81.70% (excluding foreclosed asset income of $3.5 million and amortization expense related to certain intangible assets totaling $0.7 million) in the fourth quarter of 2012.

In the first quarter of 2013, the Company recorded a non-cash income tax benefit of $119.8 million related to the reversal of a significant portion of a valuation allowance that was established against its net deferred tax assets during the third quarter of 2009. As of March 31, 2013, the Company’s net deferred tax assets totaled $129.8 million. The reversal of the valuation allowance was done in accordance with generally accepted accounting principles and was based on a number of factors, including the Company’s ninth consecutive profitable quarter, improved financial condition, and the likelihood that future pre-tax earnings will utilize our remaining deferred tax assets. The Company did not recognize any income tax expense in the comparable prior periods.

Balance Sheet Highlights

Total assets at March 31, 2013 of $4.58 billion increased by $422.8 million and $210.7 million from March 31, 2012 and December 31, 2012, respectively.

Total loans and leases at March 31, 2013 of $2.27 billion increased by $191.8 million and $70.7 million from March 31, 2012 and December 31, 2012, respectively. The increase in total loans and leases from the fourth quarter of 2012 was due to an increase in the commercial, residential mortgage and consumer loan portfolios of $70.7 million, $38.7 million and $6.8 million, respectively, partially offset by a decrease in the commercial mortgage loan, construction and development loan and leases portfolios of $35.9 million, $8.2 million and $1.6 million, respectively.

Total deposits at March 31, 2013 were $3.76 billion, compared to $3.51 billion and $3.68 billion at March 31, 2012 and December 31, 2012, respectively. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.01 billion at March 31, 2013. This represents an increase of $137.9 million from a year ago and an increase of $7.3 million from December 31, 2012. Changes in total deposits during the quarter included an increase in non-interest bearing demand deposits, interest-bearing demand deposits and time deposits of $14.1 million, $19.7 million and $67.1 million, respectively, partially offset by a decrease in savings and money market deposits of $17.0 million.

Total shareholders’ equity was $650.1 million at March 31, 2013, compared to $467.5 million and $504.8 million at March 31, 2012 and December 31, 2012, respectively.

Asset Quality

Nonperforming assets at March 31, 2013 totaled $75.3 million, or 1.64% of total assets, compared to $90.0 million, or 2.06% of total assets at December 31, 2012. The sequential-quarter change reflects net decreases in Mainland construction and development assets of $20.7 million and Hawaii residential mortgage assets of $3.0 million. These net decreases were offset by increases in Mainland commercial mortgage assets of $8.0 million and Hawaii commercial assets of $1.1 million. We did not have any loans delinquent for 90 days or more still accruing interest at March 31, 2013, compared to $0.5 million at December 31, 2012. In addition, loans delinquent for 30 days or more still accruing interest totaled $8.8 million at March 31, 2013, compared to $10.4 million at December 31, 2012.

Net charge-offs in the first quarter of 2013 and first quarter of 2012 totaled $3.0 million and $2.8 million, respectively, compared to net recoveries of $1.8 million in the fourth quarter of 2012.

The ALLL, as a percentage of total loans and leases, was 3.82% at March 31, 2013, compared to 4.37% at December 31, 2012. The ALLL, as a percentage of nonperforming assets, was 115.27% at March 31, 2013, compared to 107.10% at December 31, 2012. The ALLL, as a percentage of nonaccrual loans, was 133.06% at March 31, 2013, compared to 121.53% at December 31, 2012.

Capital Levels

At March 31, 2013, the Company’s Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 22.85%, 24.12%, and 14.86%, respectively, compared to 22.54%, 23.83%, and 14.32%, respectively, at December 31, 2012. The Company’s capital ratios continue to exceed the levels required to be considered a “well-capitalized” institution for regulatory purposes.

Non-GAAP Financial Measures

This press release contains certain references to financial measures that have been adjusted to exclude certain expenses and other specified items. These financial measures differ from comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in that they exclude unusual or non-recurring charges, losses, credits or gains. This press release identifies the specific items excluded from the comparable GAAP financial measure in the calculation of each non-GAAP financial measure. Management believes that financial presentations excluding the impact of these items provide useful supplemental information that is important to a proper understanding of the Company’s core business results by investors. These presentations should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures presented by other companies.

Conference Call

The Company’s management will host a conference call today at 1:00 p.m. Eastern Time (7:00 a.m. Hawaii Time) to discuss the quarterly results. Individuals are encouraged to listen to the live webcast of the presentation by visiting the investor relations page of the Company's website at http://investor.centralpacificbank.com. Alternatively, investors may participate in the live call by dialing 1-888-317-6016. A playback of the call will be available through May 27, 2013 by dialing 1-877-344-7529 (passcode: 10027094) and on the Company's website.

About Central Pacific Financial Corp.

Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $4.6 billion in assets. Central Pacific Bank, its primary subsidiary, operates 35 branches and 114 ATMs in the State of Hawaii, as of March 31, 2013. For additional information, please visit the Company’s website at http://www.centralpacificbank.com.